Strategic Default: Walking Away from Mortgages

60 Minutes: A Million Have Walked Away; Trend Could Undermine the Fragile Economic Recovery

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The Southwest has become an inland ocean of bad mortgage debt. In Arizona, a full 50 percent of houses are underwater, and in Nevada it's even worse: 65 percent of houses there are drowning and the rivers are rising.

And it's not just the Southwest: according to CoreLogic, more than 11 million homeowners across the country are underwater. It's estimated that number could double in the next year, which means nearly half of all American mortgage holders will owe more on their homes than those homes are currently worth.

"We've been through an event that none of us have ever experienced in this country since the Depression," David Stevens, the commissioner of the Federal Housing Administration, told Safer.

To try and stem the tide of foreclosures, Stevens says the Obama administration has set aside billions to give banks incentive to help struggling and underwater borrowers with their mortgages. But banks have been slow to modify the terms of those loans.

"The fact of the matter is these programs are designed to affect those who are most at risk who are unable to make their payments. And it does require the investor, the servicer to participate," Stevens explained.

"The decision to walk away from the sinking home, by people who can afford to pay, is spreading like a virus. Because if one person in the street does it, the next door neighbor says, 'What am I doing? Why am I putting all this money into this almost worthless house?'" Safer remarked.

"The concern has to be for someone who's gonna take that move is that they have to be so deeply in negative equity that they're willing to damage their credit, damage their financial reputation going forward. If you get foreclosed on in your home, you walk away from your mortgage when you could have afforded it particularly, that's gonna follow that family for years to come," Stevens said.

But Chad Ruyle, co-founder of a new business called youwalkaway.com, says fears of the consequences are overblown.

"People think that, if they're late on their payment or they defaulted that a sheriff is gonna come the next day and rip them out of the home. What we do is offer people a piece of mind right away that they know that's not going to happen," Ruyle said.

The website urges underwater homeowners to "unshackle themselves" from their mortgage obligations and, for a price, walks them through the process of walking away.

Ruyle says his greatest challenge is convincing people that they are not immoral.

"The biggest concern people have, our customers have, is the stigma of foreclosing, and what will the neighbors think. But as more and more people are foreclosing, that stigma is wearing off," he explained. "People are realizing now that there isn't shame in defaulting. The banks don't feel shame by foreclosing on a person's home."

"So, you're saying we should all be acting like bankers?" Safer asked.

"Sure. I mean, it's a business transaction," Ruyle said.

Web Extra: YouWalkAway.com


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